Labour today accused the government of delivering tax cuts for the banking sector even after George Osborne slapped an extra £800m tax on bank profits this year as the coalition negotiates a deal to rein in bank bonuses and boost lending to business.

Ahead of his showdown in the House of Commons with the chancellor, Ed Balls said: "Without this bank bonus tax – and with the banks set to benefit from a corporation tax cut – George Osborne has actually delivered a tax cut for the banks compared to last year, even after today's announcement."

The shadow chancellor later told MPs that Osborne had announced a "mini-budget" over breakfast when he took the unusual step of announcing a tax change for banks on BBC Radio 4 rather than in next month's budget.

The decision to raise the bank levy was taken only yesterday, which prompted today's early morning announcement, described by Balls as a "hurried and panicky announcement".

"While we welcome the fact that George Osborne has listened to our calls to raise more from the banks this year his announcement today does not go far enough. If George Osborne was serious he would adopt Labour's plan to repeat last year's £3.5bn bank bonus tax on top of the bank levy. With the economic recovery stalling we would use the money raised to help create the jobs and growth we badly need this year," Balls said.

The Unite union dismissed the levy as a "pittance" and "political gesturing," saying it did nothing to reform banking.

Speaking on BBC Radio 4 this morning, Osborne said he was able to increase the levy because banks' performances had been stronger than expected. The Chancellor added he wanted the banks to be aware of the increase in the tax so he could conduct negotiations with them over bonuses and lending in "good faith".

"That [extra £800m] is a substantial sum of money that will help the government and help Britain deal with its budget deficit," Osborne said. The levy is intended to ensure the banks were making a "fair contribution" to society. What the government wants from the banks is "more lending, more tax, a bigger contribution to society and less bonuses than they paid last year".

"I'm not prepared to conclude a deal [with the banks] until I think it's a good one," he added.

In a robust Treasury questions in the Commons, Osborne denied claims that banks would pay less tax. "The banks will pay more in tax each and every year than under the previous government."

In his first scheduled Commons exchange with Balls since he was named shadow chancellor, Osborne attacked his tenure at the Treasury, where he served as City minister.

Calling Balls a "deficit denier", Osborne said: "We have had to deal with his economic legacy". Balls was the City minister who knighted former Royal Bank of Scotland boss Sir Fred Goodwin, he said.

Talks on the so-called Project Merlin over limiting bonuses and increasing lending to businesses stalled last month although bank bosses are holding a telephone conference this afternoon with a view to signing an agreement by tomorrow. They are being asked to commit to lend £190bn to businesses and provide more information about how their top staff are paid.

Unions were unimpressed by the chancellor's surprise bank tax announcement. Len McCluskey, Unite general secretary, said: "Nobody will be convinced by this political gesturing. The effort to present this bank levy as a punishment for the banks is pathetic, the money returned to the Treasury is a pittance, while bonuses are chucked around like confetti.

"This levy does nothing to fundamentally reform banking in this country and effectively Osborne has been paid to go away. This is a shameful reflection of how lacking in muscle this government is prepared to be when it comes to holding the financial services sector to account."

The levy will be paid by UK banks including HSBC and Barclays and the UK operations of banks from other countries such as Goldman Sachs and Deutsche Bank.

Bank shares were largely unmoved by Osborne's announcement and when the levy was first announced in June, analysts calculated that banks would eventually be better off because of the cuts to corporation tax to 24% from 28% that will take place over the next four years.

Despite the chancellor's denials, analysts believe the bailed-out Lloyds bank could actually pay less tax in four years' time as it makes most of its profits in the UK, where its corporation tax bill will fall. Royal Bank of Scotland, also rescued by a taxpayer bailout, has a £6bn tax credit as a result of the losses it has made since the banking crisis, so it may not have to pay any corporation tax until the end of next year, according to some analysts.

About this article

Ed Balls accuses government of delivering 'tax cuts for the banks'

This article was published on
the Guardian website
at 11.11 EST on Tuesday 8 February 2011.
It was last modified at 02.41 EDT on Tuesday 20 May 2014.
It was first published at 03.40 EST on Tuesday 8 February 2011.